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How to calculate GDP: explained briefly in simple terms

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How to find GDP: what is taken into account when calculating
GDP or gross domestic product is measured to assess the state of the country’s economy. This takes into account the total volume of products produced on the territory of the state without reference to nationality. The higher the GDP, the better the welfare of the country.

We will tell you how to calculate GDP and what methods of calculating this economic criterion are used.

The content of the article:

1 Methods of calculating GDP
2 Calculation of GDP by income
2.1 In this case, the calculation formula is applied as follows:
3 Calculation of GDP by expenditures
4 Production method of calculating GDP 4.1 The formula for
calculating GDP in this case looks like this:
Methods of calculating GDP

By income. In this case, the factor profit of the participants in the economic system (wages, income from entrepreneurship, interest, etc.), as well as depreciation and income from indirect taxation, is taken into account for calculation.
In terms of expenses. All costs of economic entities – households, firms, government spending, the balance of exports and imports are taken into account.
production method. When calculating GDP, other indicators are not taken into account, except for the value added for each production stage in the production of products.
All transactions that should be taken into account when calculating GDP are expressed in monetary terms.

Calculation of GDP by income
The applied method of calculating GDP by income or allocative method of calculating GDP is based on the following criteria:

wages paid for the work of staff;
net taxation arising from production and imports;
gross profit;
gross income (mixed).

In this case, the calculation formula is applied as follows:
GDP = OT + VP + GVA + H – C, where

OT – wages (money received in the reporting period);

VP – gross profit and income;

H – taxes on production and imports;

C – subsidies issued to ensure production and imports.

This option is used to analyze the cost structure of the gross product.

If we add the income of other states to the result and subtract the income transferred to other countries, then we get another economic criterion for evaluating efficiency – gross national income (GNI).

Calculation of GDP by Expenditure
The following formula is used to calculate GDP by expenditure:

GDP = GVA + NNP + NNI, where

GVA – gross value added;

NNP – net tax on national products;

CNI – net taxation on imports.

To calculate the NNP, subsidies issued from the state budget and taxes on products must be deducted. Subsidies listed are subtracted from total import taxes to calculate the CNI.

The final indicator of GDP calculated by the distribution method and the method of calculation by the volume of expenditures may differ. This is due to the presence of statistical discrepancies in the initial indicators.

Production method of calculating GDP
In addition to calculating GDP by expenditure and income, there is a production method. To calculate an economic indicator, this method takes into account the amount of gross value added (GVA).

The formula for calculating GDP in this case looks like this:
GDP \u003d GVA + NNP, where

GVA – gross value added;

NNP is net national product minus depreciation charges.

GVA characterizes the difference between two important indicators – the total value of domestic goods and services produced and the total value of these products applied in the production process (“intermediate consumption”).

This means that the production consumes such resources as: raw materials, fuel, food, clothing, transport, etc.

In addition, there are additional payments. For example, travel allowances for staff, travel expenses, loans, etc.

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